Delgaizo v. Commonwealth
2010 WL 4656462
Pa. Commw. Ct.2010Background
- Taxpayers DelGaizo and Vosbury, married, residents of Downingtown, PA, together challenged 2004 PA personal income tax assessed under S-corporation treatment for MLEA.
- MLEA elected PA S-corporation status effective Jan 1, 2002; S-corp status generally exempt from PA corporate net income tax, with shareholders taxed personally on distributive shares.
- For 2004, RK-1 forms showed PA taxable income from MLEA; taxpayers offset this by purported losses carried over from 2002–2003.
- PA Department assessed additional tax, interest, and penalties; Board of Appeals denied within six months and was deemed denied, then Board upheld the assessment.
- Taxpayers argued Section 307.10(b) of the Tax Reform Code prohibiting loss carryovers for S-corporation shareholders violates Uniformity and Equal Protection.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Constitutionality of Section 307.10(b) under Uniformity Clause | DelGaizo/Vosbury contend disparate treatment vs C-corporations | Commonwealth argues legitimate distinction between S- and C-corporations | Not violated; classifications constitutional |
| Constitutionality under Equal Protection Clause | Differential treatment burdens S-corp shareholders unfairly | Legitimate distinctions between S- and C-corporations justify treatment | Not violative; distinctions supported by policy |
| Role of court in policy judgments of taxation | Statute is unfair policy; court should strike | Court reviews only constitutionality, not policy wisdom | Court did not second-guess legislative policy |
Key Cases Cited
- Leonard v. Thornburgh, 507 Pa. 317 (Pa. 1985) (taxation standards; legislative broad discretion)
- Free Speech, LLC v. City of Philadelphia, 884 A.2d 966 (Pa. Cmwlth. 2005) (tax statutes presumed constitutional)
- Scott Electric Co. v. Commonwealth, 692 A.2d 289 (Pa. Cmwlth. 1997) (S vs C corporations not similarly situated)
- Tool Sales & Serv. Co. v. Bd. of Fin. & Revenue, 536 Pa. 10 (Pa. 1993) (uniformity/equal protection analysis in tax context)
- Wolff v. Dir. of Revenue, 791 S.W.2d 390 (Mo. 1990) (persuasive equal protection reasoning on tax treatment)
- Amidon v. Kane, 444 Pa. 38 (Pa. 1971) (legislature's prerogative in tax necessity and policy)